Cash is king or is the king dead?
For some tradies in business, sometimes cash doesn’t quite make it to the bank business account or financial accounts…
It seems from an initial perspective that this cash is beneficial in a number of ways. Yes it is great to have cash in your pocket with immediate purchasing power. Whilst this cash can be used for a bite to eat, buy whatever you need, clothes, or for a short break somewhere. Sometimes there is the view that the taking of the cash means a reduction in turnover which in turn reduces profit and taxes.
But there is a downside and it tends to comes much much later in a number of ways. Usually the first thing is you need to go to the bank for a loan or to roll over your existing facilities with the bank. The result here is you fail to get approval from the bank or the interest rate you are offered by the bank seems too high. In some cases we are seeing people pay between 3% to 5% more than they should for their business funds because their financial accounts from their accountant do not show a strong ability to service the loan facilities you require.
Another downside is when you want to sell your business the figures you have from your accountant do not project to the potential purchaser the profit and the wages to the owners and the contribution to superannuation for retirement that any future owners are looking for when they would like to sell some years down the track. In fact the figures might be indicating at best you might get the loans you have paid out and there is nothing left for retirement for you. You have invested all that effort for nothing over all the years. Imagine that, all you did was give yourself a job and worked long hours and at the end you may as well have worked for someone else all that time and not had the worry and responsibility of running a business.
Well how do you turn this around, what am I doing wrong, where is the magic?
One of the first mistakes trades businesses make is they do not treat the business like a real business. There are many legitimate ways to use the rules of the “Australian Tax Office” ATO and make substantially more income and more value out of your business than just plucking a few hundred dollars a couple of times a week from the till. In fact as these funds are unaccounted for you would be surprised how much this can add up to. Would you believe in some cases over $100,000.00 p.a? It does get away from you.
In real terms, it is just good business sense to make your trade business worth more over time. A process that allows you to make your business that cash cow that it should be a business that allows you to build up other assets personally and through tax effective structures like your superannuation either self managed or otherwise.
Now in some cases trade business owners are not declaring any income and are not contributing to superannuation and reducing the value of their business by taking cash from the till.
Here is the magic, imagine all your business income goes through your till and into the bank. Your trade business is now worth more with a greater turnover. Now imagine you pay yourself a proper wage and still pay little or no tax. Also imagine you invest into super for 5 years say an average of $40,000.00 p.a. each. If you are cautious and invest in cash a capital guaranteed strategy you will have more than afew hundred thousand dollars in superannuation. This is an amazing turn around with your asset base towards retirement. You now have the option to invest through a self managed superannuation funds purchase properties with some of these funds. Your options are much better and you still have your business!
With a few simple changes we can help you earn more from your tradie business, increase the value of your business and develop an investment strategy to grow other assets through superannuation or otherwise.
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